What expenses for buying a house can be written of tax return?

Hi. I have some tax questions about a new home purchase. I guess I could probably find this information online somewhere, but unfortunately I don't have enough time to look. I did a quick search herre and didn't find anything directly relavent. Further, since I did just buy a new home, I can't offer to much for this question, but hopefully you wise Answer-ers will take pity on me. I live in Bucks County, Pennsylvania, and my fiancee and I just bought our first house. My name is listed on the paperrwork first, so I guess I get the tax write-offs. I have the statement from the mortgage company about how much interest I paid in 2005 (which I already know is tax deductible). Since we are not married yet, I am filing alone and I make under $50K/year. My question is: What other expenses can be reasonably written off? Are any of the closing costs able to be? My payment to the seller reimbursing him for real-estate or school taxes? Settlement for the house was Dec 29, 2005, so no home improvements I've made (EnergySTAR upgrades) can go on this year's filing, right? Any and all information that can be provided will be most helpful. If your answer leads me to get a significantly larger refund, I will come back and tip generously. Thank you.

Hi heavylee, 1. All amounts paid in 2005 of mortgage interest are deductible. Correct? Yes, as long as you use Schedule A and your mortgage is less than $1 million (!). Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). However, your deduction may be limited if: * Your total mortgage balance is more than $1 million ($500,000 if married filing separately), or * You took out a mortgage for reasons other than to buy, build, or improve your home. http://www.irs.gov/publications/p530/ar02.html#d0e569 2. All property taxes paid by me directly to government are deductible. Correct? Yes, given the following criteria. Most state and local governments charge an annual tax on the value of real property. This is called a real estate tax. You can deduct the tax if it is based on the assessed value of the real property and the taxing authority charges a uniform rate on all property in its jurisdiction. The tax must be for the welfare of the general public and not be a payment for a special privilege granted or service rendered to you. You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. http://www.irs.gov/publications/p530/ar02.html#d0e285 3. Are amounts paid to the seller during settlement reimbursing him for his prepayment of these real estate taxes deductible? If I understand correctly, they are not. Actually, they are. You didn't even have to reimburse the seller to qualify for the deduction of your share. Division of real estate taxes. For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. You (the buyer) are treated as paying the taxes beginning with the date of sale. This applies regardless of the lien dates under local law. Generally, this information is included on the settlement statement you get at closing. You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. You each can deduct your own share, if you itemize deductions, for the year the property is sold. http://www.irs.gov/publications/p530/ar02.html#d0e285 4. What moving expenses are deductible? I was not able to see in the IRS document where it mentions this. Sorry, although you hadn't asked about it, I thought I'd add it in case you didn't know about it. I should've included a link to Pub 521 for you. Publication 521 (2005), Moving Expenses http://www.irs.gov/publications/p521/ As long as you read the IRS Pubs thoroughly, you should be fine. You can always call them if you have any questions. Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040. http://www.irs.gov/publications/p521/ar02.html#d0e2611 Regards, hummer

Hi, thank you for a speedy and thorough answer. I believe I understand what you've described, but I'd like to repeat the points relavent to me back to you, to make sure that I prepare my taxes properly. All amounts paid in 2005 of mortgage interest are deductible. Correct? All property taxes paid by me directly to government are deductible. Correct? - Are amounts paid to the seller during settlement reimbursing him for his prepayment of these real estate taxes deductible? If I understand correctly, they are not. What moving expenses are deductible? I was not able to see in the IRS document where it mentions this. Thank you for addressing each item above directly. I hope to receive your response soon. Best, Heavylee

Good answer. I was a little confused at first, but the researcher responded to my request for clarification quickly and thoroughly.

Hi heavylee, Congratulations on your purchase! Not only have you started to build up equity for yourselves, but you will benefit from some tax deductions. What other expenses can be reasonably written off? Real Estate Tax / Mortgage Interest / Loan Points / Some Moving Costs Are any of the closing costs able to be? No but see "Cost as Basis". My payment to the seller reimbursing him for real-estate or school taxes? Yes but only from the date of sale onward. Settlement for the house was Dec 29, 2005, so no home improvements I've made (EnergySTAR upgrades) can go on this year's filing, right? That's right. The IRS Publication 530, Tax Information for First-Time Homeowners will answer all of your questions. I've copied and pasted a few relevant sections below but please click on the link for full details. # What You Can and Cannot Deduct "To deduct expenses of owning a home, you must file Form 1040 and itemize your deductions on Schedule A (Form 1040). If you itemize, you cannot take the standard deduction. See the Form 1040 instructions if you have questions about whether to itemize your deductions or claim the standard deduction." >>>Your house payment. "If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Your house payment may include several costs of owning a home. The only costs you can deduct are real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest. These are discussed in more detail later." ** You cannot deduct any of the following items. "Here are some expenses, which may be included in your house payment, that cannot be deducted. * Fire or homeowner's insurance premiums. * FHA or other mortgage insurance premiums. * The amount applied to reduce the principal of the mortgage. Nondeductible payments. * Insurance, including fire and comprehensive coverage, and title and mortgage insurance. * Wages you pay for domestic help. * Depreciation. * The cost of utilities, such as gas, electricity, or water. * Most settlement costs. See Settlement or closing costs under Cost as Basis, later, for more information." >>>Real Estate Taxes "Most state and local governments charge an annual tax on the value of real property. This is called a real estate tax. You can deduct the tax if it is based on the assessed value of the real property and the taxing authority charges a uniform rate on all property in its jurisdiction. The tax must be for the welfare of the general public and not be a payment for a special privilege granted or service rendered to you." Deductible Real Estate Taxes "You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year." >>> Sales Taxes "Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Caution If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home." >>> Home Mortgage Interest Mortgage Interest Paid at Settlement "One item that normally appears on a settlement or closing statement is home mortgage interest. You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender. See the discussion under Mortgage Interest Statement, later. Also, if you pay interest in advance, see Prepaid interest, earlier, and Points, next." >>> Points "The term 'points' is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. See Points paid by the seller, later." >>> Amounts charged for services. "Amounts charged by the lender for specific services connected to the loan are not interest. Examples of these charges are: * Appraisal fees, * Notary fees, * Preparation costs for the mortgage note or deed of trust, * Mortgage insurance premiums, and * VA funding fees. You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis, later." >>> Cost as Basis "The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. The cost of your home includes most settlement or closing costs you paid when you bought the home. If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage." http://www.irs.gov/publications/p530/index.html Additional Links of Interest Your Home as a Tax Shelter: Top Ten Tax Deductions for Owning Your Home 1. Mortgage Interest 2. Points 3. Equity Loan Interest 4. Home Improvement Loan Interest 5. Property Taxes 6. Home Office Deduction 7. Selling Costs and Capital Improvements 8. Capital Gains Exclusion 9. Moving Costs 10. Mortgage Tax Credit http://www.nolo.com/article.cfmcatId/B610DF8A-B9F2-429A-8B9B77A2E203513F/objectId/3F35969D-53CE-4A1B-B44FFDD737610F63/213/243/AT/ Top 10 Deductions for Homeowners 1. Deductible Mortgage Interest 2. Tax-Breaks for Home Refinancers 3. Deductible Loan Points for Homebuyers 4. No Income Taxes On Capital Gains 5. Home Improvements 6. Real Estate and Property Taxes 7. Home Office 8. Limited Moving Expense 9. Health-Related Improvements 10. Vacation Homes http://www.quickenloans.com/mortgage/articles/buying_home/top_ten_deductions.html Tax Benefits of Buying a Home "This calculator estimates the tax benefit of buying a home. Input your loan parameters and the month you purchased the home. Since home interest and points are captured in itemized deductions, please estimate your Schedule A itemized deductions. Your itemized deductions including your mortgage deductions will be compared to your standard deduction to calculate the tax benefit of purchasing your home." http://www.quickenloans.com/mortgage/home_buying_calculators/tax_savings_calculator.html?lid=286 I hope this helps you to see your way through the IRS maze a bit. If you have any questions, please post a clarification request and wait for me to respond before closing/rating my answer. Thank you, hummer Search strategy: I searched the IRS website. I also searched Google using the terms: home tax deductions

Sorry, here's the correct link for the calculator: http://www.mortgage101.com/Calculators/TaxBenefits.asp?p=mtg101

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